Which one of the following statements about floating-rate preferred stock is correct?
A) Its dividends increase as interest rates increase.
B) Its market price increases at a set rate annually.
C) It is the only stock issued without a par value.
D) Its dividends are deductible for tax purposes by the paying corporation.

Question

Quizplus · Accepted Answer

Floating-rate preferred stock is a type of preferred stock that has a dividend rate that is tied to a benchmark interest rate, such as the London Interbank Offered Rate (LIBOR). As interest rates increase, the dividend rate on the stock also increases, allowing investors to earn a higher return on their investment. Therefore, option A is correct. Option B is incorrect because the market price of floating-rate preferred stock is not guaranteed to increase at a set rate annually. Option C is incorrect because many types of stock may be issued without a par value. Option D is incorrect because preferred stock dividends are not generally tax-deductible for the paying corporation.

Which One of the Following Statements About Floating-Rate Preferred Stock